For Transparency and Competitiveness

Mark Green
Posted October 12, 2012

Industry’s federal lawsuit against the U.S. Securities and Exchange Commission (SEC) challenging its Section 1504 disclosure provision is about keeping U.S. oil and natural gas companies competitive with global rivals while finding a better way to foster transparency.

A coalition of business groups filed suit this week in federal court to block implementation of the provision, saying the SEC disregarded its obligations to limit costs resulting from the rule as well as its harmful effects on U.S. companies’ competitiveness. API President and CEO Jack Gerard:

“The oil and natural gas industry strongly supports payment transparency. We’ve been working hard to increase transparency for a decade, but this rule could interfere with ongoing efforts by making U.S. firms less competitive against state-owned firms in China and Russia that have no interest in transparency...The rule as written would impose enormous costs on U.S. firms and put them at a competitive disadvantage against government-owned oil giants not subject to the rule.”

The Section 1504 rule requires publicly traded energy firms to release commercially sensitive, detailed information on legitimate payments to governments for the development of oil, natural gas and minerals. This would include extensive data about how much they pay in licenses, taxes, royalties and other fees – giving competitors an edge when bidding for energy contracts. By the SEC’s own estimate the process will cost industry $1 billion immediately and hundreds of millions of dollars more in the future.

Karen Harbert, president and CEO of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, a coalition member:

“This rule is harmful to our energy security and to American consumers, and should not stand. American oil and natural gas companies must compete against foreign, state-owned oil companies for access to resources around the world.  The SEC’s ‘extraction rule’ will require them to turn over their playbooks for how they bid and compete.  Their competitors are under no such obligation to do so, and compliance with this rule violates the law in several countries in which U.S. firms do business.  Yet the SEC refused to craft an exception for that circumstance and has dramatically underestimated the impact to businesses and consumers.”

Gerard said there are alternatives. Industry has worked with other groups and the administration to implement the Extractive Industries Transparency Initiative, which would do a better job increasing transparency without impacting competitiveness.

“With reasonable changes, the SEC could have achieved the goal of increased transparency while also remaining faithful to its core mission to protect American investors. The rule should allow our companies to report their payments confidentially to the SEC and allow the agency to aggregate that information and publicly report payments by country.”

In addition to API, other members of the coalition are the U.S. Chamber, the National Foreign Trade Council and the Independent Petroleum Association of America.